The valuation of new generation assets in a competitive electricity market

Abstract

The selection and the valuation of a power project reveal a very difficult task in a liberalized electricity market. In conjunction with the highly capital-intensive feature of electricity supply, different factors can influence the profitability of the investment, such as: market rules, plant location, load demand and fuel cost trend, etc. In this paper, a methodology based on the long-term simulation of an electricity market is proposed to investigate the financial feasibility of new generation assets. The simulation tool handles zonal- or nodal- based pricing schemes, with different kinds of equality and inequality constraints. The procedure has been applied to evaluate the penetration level of combined cycle gas turbine power plants in southern Italy.